Ladies and gentleman, thank you for standing by. Welcome to the AMETEK second quarter earnings conference call. During the presentation, all participants will be in a listen-only mode, afterwards, we will conduct a question-and-answer session. (Operator Instructions).

As a reminder, this conference is being recorded, Tuesday July 26, 2011.

I would like to turn the call over to Mr. Bill Burke, Treasurer and Vice President of Investor Relations. Please go ahead, sir.

Joining me this morning are Frank Hermance, Chairman and Chief Executive Officer, and John Molinelli, Executive Vice President and Chief Financial Officer.

AMETEK's second quarter results were released earlier this morning. These results are available electronically on Market Systems and on our website at the investor section of ametek.com.

A tape of today's conference call may be accessed until August 9 by calling 800-633-8284 and entering the confirmation code number 21532101.

This conference call is also webcasted, it can be accessed at ametek.com and at streetevents.com. The conference call will be archived on both of these websites.

I will remind you that any statements made by AMETEK during the call that are not historical in nature are to be considered forward-looking statements. As such, these statements are subject to change based on various risk factors and uncertainties that may cause actual results to differ significantly from expectations.

A detailed discussion of the risks and uncertainties that may affect our future results is contained in AMETEK's filings with the Securities and Exchange Commission. AMETEK disclaims any intention or obligation to update or revise any forward-looking statements. I will also refer you to the investor section of ametek.com for a reconciliation of any non-GAAP financial measures used during this conference call. We will begin today with some prepared remarks, and then we will take your questions.

I will now turn the meeting over to Frank.

Frank Hermance

Thank you, Bill. AMETEK had a tremendous second quarter. We established quarterly records for sales, operating income, net income, and diluted earnings per share. Orders in the second quarter were strong, up 24% to $797 million. Book-to-bill was 1.05 and backlog of 948 million was an all-time high.

Sales in the second quarter were up 28% to $758.8 million, internal growth was very strong at 14%, while acquisitions added 12%, and currency added 2% to sales.

Operating income for the second quarter increased 36% to $157 million from $115.6 million last year, reflecting the impact of the higher sales and our operational excellence activities.

Operating income margin of 20.7% was a 120 basis point improvement over the second quarter of 2010.

Operating margins include $5.2 million in cost associated with the performance-based accelerated vesting of restricted stock, which resulted from the doubling of our stock price from the April of 2009 grant date. Excluding these cost, operating margins in the quarter were a record 21.4%.

Net income was up 40% to $94.1 million, and diluted earnings per share of $0.58 were up 38% over last year’s second quarter.

Operating cash flow in the quarter of $115 million was superb, representing a 30% increase over last year’s second quarter.

Free cash flow was $105 million or 111% of net income. Working capital management was excellent. Operating working capital fell to 17.5% of sales, our lowest level in my tenure as CEO.

Turning our attention to the individual operating groups. Electronic Instruments group had a tremendous second quarter. Sales were up 31% to $407.4 million on continuing strength in our process, power, and industrial businesses, and the contribution from the Atlas Material Testing Tech acquisition that we completed in November.

As expected, our oil and gas businesses were very strong. Internal growth for EIG was 21%, acquisitions added 7% to sales, while currency added 3%. EIGs operating income increased 38% to $101.5 million. Operating margins were very strong at 24.9%, up 110 basis points over last year’s second quarter.

The Electromechanical group also had an excellent second quarter. Sales were up 25% to $351.5 million on strength and our differentiated businesses and the contribution from the acquisitions of Technical Service for Electronics, Haydon Enterprises, Avicenna Technology, and Coining.

EMG’s operating income increased 32% to $69.2 million, and operating margins were very strong at 19.7%, up 120 basis points over last year’s second quarter.

Operational excellence is the cornerstone strategy for the company, and our focus on cost and asset management has been a key driver to both our competitive and financial success.

Operational excellence has many facets within AMETEK, including lean manufacturing, Six Sigma, and our factories and back office operations, design for Six Sigma, and our new product development efforts, and the movement of production to low cost locals.

We also continue to drive lower cost through our global sourcing office and strategic procurement initiatives. From these sourcing activities, we recognize $7 million in savings in the second quarter and expect $28 million in savings for all of 2011. These efforts were key drivers in the very strong operating margins in the second quarter.

Global and Market Expansion continues to be a driver for AMETEKs growth. In the second quarter of 2011, international sales represented 51% of our total sales. Organic growth in Asia was very strong at 34%, while Europe also showed double-digit organic growth. Through the investments we’ve made over the last several years, sales growth in the BRIC locations was excellent at 47% in the quarter.

AMETEK of Brazil was the winning bidder to provide Petrabrass with battery backup systems, batteries, and battery rechargers over the next three years for the Comperj Petrochemical Complex in Rio De Janeiro, Brazil. Comperj’s is a large-scale refinery, a petrochemical facility which will have a capacity to refine 165,000 barrels of oil per day. This equipment will be used in various critical applications across the facility and represents a multi-million dollar opportunity for AMETEK.

AMETEK’s Programmable power business produces a wide variety of simulators to test both space and ground base [inaudible] power systems. In the second quarter, we delivered a 97 kilowatt system to a Chinese research institute, our largest solar array simulator ever. This system can precisely simulate the behavior of a solar panel under a wide variety of conditions, enabling spacecraft testing to be as accurate as possible.

New Product Development is a key to our long-term health and growth. We’ve consistently invested in RD&E. We expect to spend $136 million in 2011, up 21% over 2010.

And we’re excited about some recent introductions. Hamilton Sundstrand has selected AMETEK’s fuel flow transmitter with a Pratt & Whitney PW1000G Geared TurboFan engine. This engine is one of two being offered by Airbus to power its new A320 NEO aircraft. The same engine has also been selected to power the Bombardi AC series aircraft, and the Mitsubishi MRJ aircraft. Estimates are that as many as 10,000 of these engines will be built, representing up to $60 million in revenue for AMETEK over the life of the program.

In June, Vision Research booked their largest ever order. A U.S. military test range purchased over $3 million of high-speed cameras and accessories for use in missile launch applications. The order includes a combination of Phantom 65s, a digital camera with very high resolution, and Phantom 341s a recently-introduced camera ideal for use with telescopic tracking mounts. The order consisted of more than 20 cameras plus accessories and service contracts.

From an overall perspective, revenue from products introduced over the last three years was 21% of sales in the second quarter, up from 19% in 2010, reflecting the excellent work of our businesses in developing the right products to serve their customers.

During the second quarter, we completed the acquisitions of Avicenna Technology and Coining, acquiring $90 million in annual revenue and deploying nearly $185 million in capital. The first acquisition was Avicenna Technology, Inc., a privately-held supplier custom components used in a medical device industry. Avicenna provides us with expertise in producing fine-featured catheter and other medical components for leads, guidewires, and custom medical assembly’s.

Avicenna adds to our growing portfolio businesses that serve the highly-attractive medical device market and is an excellent fit with our technical services for electronics business acquired in 2010.

The combination of these two businesses positions AMETEK as the only medical interconnects provider, with integrative capabilities for the catheter, cardiac, and neurostimulation markets.

Avicenna is based in Montevideo, Minnesota, and has annual sales of approximately $25 million. And with this acquisition, medical applications comprise approximately 6% of AMETEK’s total revenue.

In May, we announced the acquisition of Coining Holdings Company, a global leader in custom-shaped preforms, micro-stampings, and bonding wire that’s used for joining electronic circuitry, packaging microelectronics, and providing thermal protection and electrical conductivity for a wide range of electronic devices.

Coining’s products are used in highly-engineered applications for the RF microwave, photonics, medical, aerospace and defense, and general electronic industries. Coining’s an outstanding addition to AMETEK’s business portfolio, and a really good fit with our engineered materials, interconnects and packaging businesses. Coining’s unique proprietary manufacturing processes, mesh well with our existing specialty metals capabilities. Coining is based in Montville, New Jersey, and has annual sales of approximately $65 million.

Acquisitions will continue to be a focus for us during 2011 as we see this strategy as a key driver to the creation of shareholder value. We have the financial capacity, managerial capability and disciplined approach to support this acquisition’s focus. Our backlog a deals is excellent, balance sheet is strong, and our cash flow and financing facilities provide us with ample liquidity to pursue this strategy.

Okay, now turning to the outlook for 2011, we expect our businesses to continue to show solid growth in 2011 with our longer cycle, oil and gas, power, and aerospace businesses showing particular strength.

Our record backlog, strong portfolio of businesses, proven operational excellence capability, and a successful focus on strategic acquisitions should enable us to continue to perform well in 2011.

We anticipate 2011 revenue to be high teens on a percentage basis from 2010, and organic growth to be up at least high single digits.

Earnings for 2011 are now expected to be in the range of $2.30 to $2.34 per diluted share, up 31% to 33% over 2010, reflecting the leveraged impact of core growth and our streamlined to cost structure.

This is an increase from our previous guidance of $2.20 to $2.25 per diluted share. Third quarter, 2011 sales are expected to be up approximately mid-teens on a percentage basis from last year’s third quarter. We estimate our earnings to be approximately $0.57 to $0.59 per diluted share, an increase of 19 to 23% over last year’s third quarter of $0.48 per diluted share.

In summary, our overall businesses performed extremely well in the second quarter of 2011. We expect top and bottom line growth to continue in 2011 as our longer cycle, higher profit businesses show particular strength and the benefits from recent acquisition are fully realized.

We have a strong balance sheet and generates significant cash flow that provides us with plenty of liquidity to operate the business and pursue our acquisition strategy.

In addition to acquisitions, we continue to make sizable investments in new product development as well as global and market expansion to position ourselves for future growth.

John will now cover some of the financial details and then we’ll be glad to take your questions. John?

John Molinelli

Thanks, Frank. As Frank noted, we had an outstanding second quarter with excellent financial performance and a high quality of earnings. I will touch on some further details.

Selling expense was up in line with the growth in sales. General and administrative expenses were 1.8% of sales, essentially unchanged from last year’s second quarter. Excluding the cost associated with the accelerated vesting of restricted stock, G&A was 1.5% of sales, down significantly from last year.

The effective tax rate for the quarter was 31.4% up slightly from last year’s second quarter rate. We anticipate of a rate between 30 and 31% for the full-year 2011. As we have said before, actual quarterly tax rates can differ dramatically either positively or negatively from this full-year rate.

On the balance sheet, working capital defined as receivables plus inventory, less payables was 17.5% of sales, down from 19.6% in last year’s second quarter, reflecting the tremendous work done by our operating units to reduce the company’s investment there.

Compared to last year’s second quarter, our collection cycle improved to 50 days from 53 days, and inventory turns improved by 11%.

Capital spending was $10 million for the quarter. 2011 capital expenditures are expected to be about $45 million. Depreciation and amortization was $21 million for the quarter. 2011 depreciation and amortization is expected to be approximately $87 million for the full year.

Operating cash flow for the second quarter was $115 million, up 30% over last year’s second quarter. Free cash flow was $105 million for the second quarter, representing 111% of net income. For the full year, we anticipate free cash flow to be approximately 115% of net income.

Total debt was $1.21 billion at June 30, up $42 million from year-end. Expenditures for acquisitions have totaled nearly $185 million for the first half of this year. Offsetting this debt is cash and cash equivalence of $197 million, resulting in a net debt-to-capital ratio at June 30, of 33.8% down from 36.2% at December 31.

At June 30, we had approximately $500 million of cash and existing credit facilities to fund our growth initiatives.

In summary, we had an outstanding second quarter of 2011, establishing records from many key financial metrics. We’re well positioned for further growth, both organically and through acquisitions, with a strong balance sheet and cash flows.

Bill?

Bill Burke

Sovanna, that wraps up our prepared remarks and we’ll be happy to take folks question now.

Question-and-Answer Session

Operator

(Operator instructions). Our first question comes from the line of Jim Lucas with Janney Capital Markets. Please proceed.

Jim Lucas - Janney Capital Markets

Thanks. Good morning, all.

Frank Hermance

Hi, Jim.

Jim Lucas - Janney Capital Markets

John, first question, payables?

John Molinelli

Sure, Jim, 267 million.

Jim Lucas - Janney Capital Markets

All right, thanks. And Frank, you talked about orders up 24%, what were the – what as the organic order rate in the quarter?

Frank Hermance

Yeah, the organic growth rate was approximately 10%.

Jim Lucas - Janney Capital Markets

Okay. And when you look at the various – both geographies and markets, have you see any sort of changes, either positive or negative, in any of the major end markets, or is it a continuation of the trends from last quarter?

Frank Hermance

It’s really a continuation of the trends from last quarter, Jim, that’s – the best way I can describe what it occurring in the entire portfolio is that we’re beginning to see a return to normalcy with some of our short cycle businesses, you know, showing that now our mid-cycle businesses right now are performing extremely well, and with the order rates, in particular, or aerospace business, we’re really starting to crank up and sales will increase in the second half of the year going into next year. So it’s a very normal recovery that we’re seeing.

But in general, all of the key end markets are extremely good.

Jim Lucas - Janney Capital Markets

Okay. And with regards to aerospace, could you just give us a little bit of a deeper drive there; what you’re seeing by the various major markets of OE, commercial versus aftermarket as well a military, et cetera /

Frank Hermance

Yeah, sure. I’d be glad to so that, Jim.

In the second quarter, aerospace overall was up mid-single digits in terms of sales. But the key thing is that orders were up mid-teens on a percentage basis with really commercial, military and third-party MRO all showing good growth. So when we look forward now to the second half of this year, we expect, if you look at the second half of 2011, or over the second half of 2010, we’re expecting high single digit growth rates.

So – and that’s not an improvement over what we saw in the in the first half of the year. So the backlog is building, just as it normally would in recovery, and our sales are going to escalate and we’re going to have a strong second half. And going into the first half of next year, aerospace looks very good.

If you break it down a little bit in regards to your question, the third-party MRO business, which is about 35% of our total business, is doing very, very well. They were organically in sales up low double digits and for the year, we’re expecting profitability – or expecting orders to be up mid-teens.

The commercial business, which is about 20% of our overall business, extremely good. Our orders were actually up about 50% in Q2 over this year versus Q2 of last year. And for the full year, we’re estimating they’re going to be up about 25%.

And even military is, which is now only about a third of our overall aerospace business, had low-single digit sales growth in the quarter. So you know, we’re not seeing any tremendous issue around our military business.

And we’re starting to see a rebound in orders in business and regional jets, which is about 10% of our business, and we expect that business for the year to be up low double digits.

So overall, it’s a very, very positive situation for aerospace.

Jim Lucas - Janney Capital Markets

Great. And then final question, back to your comment on seeing a normal recovery, we’ve talked about how this is not been far from normal, but in terms of the ramp and acceleration of the overall businesses, does it still look like we’re in the V at this point?

Frank Hermance

Yeah. I think what’s happening is the V has – we’re getting to the top of the V and you’re starting to see some of the shorter cycle businesses roll over to normalcy. Where if you look at our mid-cycle businesses, they’re well, you know, in the center of the V coming up. And our aerospace businesses are basically, you know, have bottomed out and are starting to V up.

So again, it’s just a normal situation that you would expect.

Jim Lucas - Janney Capital Markets

Great. Thank you very much.

Frank Hermance

You bet you.

Operator

Our next question comes from the line of Matt Summerville with KeyBanc. Please proceed.

Matt Summerville – KeyBanc

Morning. A couple of questions, Frank. Could you talk about the linearity you’ve saw in orders from month to month throughout the quarter for the overall business?

And then, I think you gave some organic growth rates in Asia and Europe. Can we also get that for the US?

Frank Hermance

Yeah, sure. In terms of the linearity in the quarter, Matt, if you extract acquired backlog, which basically shows the organic – what’s really happening in the overall business, in essence, they were extremely linear through the quarter. Each month was within actually a few million dollars of the other months in the quarters, so very linear performance. In terms of the organic growth rates around the world, let me just take a quick trip around the world for you.

In the U.S., the organic growth rate was 10%, and in Europe it was 11%, and in Asia it was 34%, which means if you look at the international growth rate, in total it was on the order of 18% and with the U.S. growth rate at 10%, that gets you to the 14% for the overall company.

Matt Summerville – KeyBanc

Got it. And then just one follow-up. You went through a lot of detail in the aerospace business, can you do the same for the process, power, and industrial side of EIG, and then talk about the differentiated versus cost-driven businesses, kind of what you saw in the quarter and kind of what your expectations are for the balance of the year?

Frank Hermance

Yeah, sure, I’d be glad to do that.

Process business is just a phenomenal story. They performed extremely well in the second quarter; sales were up more than 35%, it was strong growth evident across all of our process businesses. Oil and gas, as we mentioned in the press release and my opening comments, showed sizeable strengths, but also our material analysis, ultra precision technology, advanced measurement technology and measurement calibration technology, which are really all of the other divisions in this group or in this subsegment, were also very strong.

Organic sales in process were up more than 20% in the quarter. For 2011, we expect the business to grow, overall about 25%, and organic growth will be low double digits. And in particular, we are expecting continued strong performance from our leader cycle oil and gas business.

Power/industrial also performed extremely well. Q2 sales that were up more than 25% organically with excellent growth across both the power and industrial parts of the business.

If we look at the full year, we expect sales for power and industrial to be up at least high teens, organically in 2011, really driven by strength in our power business, but also our industrial businesses are doing quite well, but not quite as good as the later cycle power businesses.

So if you sum up all of EIG then, including aerospace, we are now expecting 2011, overall sales to be up high teens on a percentage basis, and organic growth of low double digits, and that is an increase of our previous guidance.

So, very, very strong performance in EIG.

EMG also did quite well in the quarter, and if we look at the two parts of that business, per your question Matt, for the differentiated EMG businesses, overall sales were up approximately 35% in Q2 and organic sales were very strong with growth of low double digits.

If you look at the parts of that business, the improvement was driven by technical motors, but our emit businesses that I talked about in my opening comments, and also aerospace third party MRO was extremely strong.

If we look forward, 2011, we expect this business to be up approximately 25% overall, and organic growth of low double digits.

So, very strong performance coming out of the differentiated EMG businesses.

Then, the last part of our company is the cost-driven motors business. That is now less than 10% of our sales, and that has definitely returned to what I would call a more normal trend after the strong growth in 2010.

Sales in Q2 were actually down mid-single digits. That was against a very tough comparison. In fact, Q2 2010 was by far the strongest quarter we had last year, and for 2011, we expect this business to be in the low single digits over all. And most importantly, given the sizeable cost improvements we’ve made in this business, we anticipate a double-digit increase in profit for the year for this business. So the team that’s managing this business has done a very, very good job.

So if you sum that up, for all of EMG, we’re expecting high-teen growth on a percentage basis for 2011 with organic growth of high single digits. So, if you take what I talked about for EIG and EMG, for AMETEK as a whole, we expect high-teen sales growth on a percentage basis with an organic growth of high single digits, and we may very well get to low double digits for 2011.

Matt Summerville – KeyBanc

Great, thanks a lot, Frank.

Frank Hermance

You bet, Matt.

Operator

Our next question comes from the line of Jamie Sullivan with RBC Capital Markets. Please proceed.

Jamie Sullivan - RBC Capital Markets

Hi, good morning.

Frank Hermance

Good morning, Jamie.

Jamie Sullivan - RBC Capital Markets

I was wondering if you could talk a little bit more about Europe. It looks like you saw the organic trends accelerate there from 1Q to Q2. Could you talk about the dynamics there?

Frank Hermance

Yeah, actually, we were pleasantly surprised with our performance in Europe. Obviously, with some of the issues that are going on there, we had anticipated performance that wouldn’t be as strong as it was. And in essence, most of our business is located in Northern Europe, versus Southern Europe, and Northern Europe was quite strong.

I think some of our new products as a matter of fact, I know, I don’t think – but I know that some of our new products are having tremendous success in Europe, and that has been a key driver to the growth. It was very nice to see the 10% organic growth, actually 11% organic growth in the quarter. Orders were good, so we think we will have a reasonably second half, even with the problems that are going on there.

Jamie Sullivan - RBC Capital Markets

Okay, thanks. And then I was wondering if you could talk about a couple of the end markets; chemical and refinery both in mature and emerging markets, just some of the customer behavior that you are seeing there.

Frank Hermance

Yeah, I mean, when we look at our business in the refining area and the chemical area in the U.S., it is largely a replacement business. There isn’t that many plants going up in the United States. And so the growth there is lower than the growth outside the U.S., although we did see growth, and I think that is really based on the fact that during the trials of the recession, these facilities in the U.S. just held back on purchasing anything they didn’t need, and now with the economy a little bit better, their output’s a little bit stronger.

They are starting to purchase more of the equipment, and also our new product development efforts helped there as well because for a modest cost, in terms of their total cost to run their factories, they can upgrade their instrumentation to a higher-level instrumentation that will in essence improve their efficiency, so we are definitely seeing some of that.

The real story here in these markets is outside the United States and if you look at some of our key businesses like the process business, more than two thirds of that business is outside the U.S., and that is where the real growth is coming from. Even in the refinery and chemical sectors of those businesses-so, it is a very, very positive situation.

Jamie Sullivan - RBC Capital Markets

Okay, great. Thanks. Just one last quick one on the charge you mentioned for the restricted stock vesting, was there a break down net income the segments or was that all in the corporate line?

Frank Hermance

No, it is not all in the corporate line, because there was also an impact on tax. Can you guys handle that question?

John Molinelli

I can handle the group breakdown. It’s about 2.1 million in G&A, about a little less than a million in EMG and then the balance in EIG.

Frank Hermance

And then there was also a tax impact, John. Do you know what that was?

John Molinelli

The tax impact cost us about six tenths of a percent on the effected tax rate in the quarter, so instead of 31.4 we would have been 30.8.

Jamie Sullivan - RBC Capital Markets

Thanks a lot.

Operator

Our next question comes from the line of Robert Berry with UBS. Please proceed.

Robert Berry – UBS

Hey, guys. Good morning.

Frank Hermance

Good morning, Robert.

Robert Berry – UBS

I actually just wanted to quickly follow-up on that chemicals question. We’ve been hearing that there is an increased potential project activity in the U.S., given how much cheap shale gas there is. Have you guys seen any rumblings of that?

Frank Hermance

Yeah, we are seeing some of that, no question about it. I think the chemical business is doing better than it was, but it still pales in comparison to what we are seeing internationally.

Robert Berry – UBS

Yep, okay. Then, I was curious about the sales outlook. It looks like you’ve been, for the past couple of quarters, tracking very well ahead of what your expectation was. I think you were looking for 20% growth this quarter, you came in at 28, but you left the outlook for sales growth unchanged. I was just wondering how you were thinking about the back half of the top line?

Frank Hermance

Yeah, that’s a great question, and I think the best way I can answer it is that with the global macro situation that we are all reading about in the news, we have been cautious about the second half of the year. And clearly, if the trends that we have seen in the second quarter continue, and I can say through at least this far in July, they have continued, those estimates could very well prove to be conservative.

Robert Berry – UBS

Yep, okay that makes sense. Then the adjustment that you are making on the earnings guidance is reflecting what happened this quarter, and then I guess some better outlook for the margin side in the second half?

Frank Hermance

Yeah, there is some margin improvement. It really is a mixture. We have the strong backlog that I talked about, so there is plenty of shipment capability off of that back log. And also, some of the operational excellence initiatives that we have in place are going to ramp up a bit as we go in to the second half of the year. So it really is a summation of the sales growth as well as margin improvement.

Robert Berry – UBS

Then, I think last quarter, you had talked about G&A being down mid-single digits this year. I assume that is adjusted for that one time item in the quarter.

Frank Hermance

What we expect for the year, is it’s going to be down about 1%, including that charge that we just talked about, and last quarter we didn’t speak to that.

Robert Berry – UBS

Okay, good, and how about on the selling side?

Frank Hermance

Selling expenses, as John indicated, was up in line with sales and we expect that to, in essence continue.

John Molinelli

Slightly less as a percentage, but in line with sales.

Robert Berry – UBS

Okay, then finally, can you comment on what the net impact of price versus inflation was in the quarter please?

Frank Hermance

Yeah, we got, we feel about 2% in pricing, and when we analyzed the price versus inflation on the input side of the business, the net of that was on the order of $6 million positive.

Robert Berry – UBS

That is interesting. What are you seeing on the commodities? Is it bouncing around a lot, but net not going up a whole lot?

Frank Hermance

Yeah, it’s a mixed bag right now. We looked at the trends from Q1 to Q2 on the commodities, and nickel was up from Q1 to Q2. But if you look at steel and you look at copper, it was actually down a little bit.

So we’re seeing variations, but you may recall that we have mechanisms in the company that our profitability is pretty much independent of what happens with these commodity prices. And that’s through a number of activities, but in a number of our businesses we will actually, where there is a high level of the base commodities, we will quote at the spot price of those commodities, and then we buy forward on that material. So we’re not looking at speculating, we know we have the order, et cetera and therefore we’ve locked in the profitability of those commodities.

There could be effect on margin percentage, but it’s not going to effect the total profitability. So, you’ve never heard of us over the last – well, forever really, talking about any major impact to our bottom line from commodity shipping.

Robert Berry – UBS

Great, good position to be in. Thanks very much, and congrats on the good quarter. Thank you.

Operator

Our next questions comes from the line of Allison Poliniak with Wells Fargo. Please proceed.

Allison Poliniak - Wells Fargo Securities, LLC

Hi. Good morning.

Frank Hermance

Good morning, Allison.

Allison Poliniak - Wells Fargo Securities, LLC

Can we just talk about margins in EIG? I think you mentioned, you know, just in a question or two before that there was a charge in passing that, but it seems like it was still down sequentially. Is that acquisition related?

John Molinelli

Let’s see. Yes, so sequentially, it was down as reported. I haven’t tried to calculate the impact of the restricted stock on that. I’ll have to do that offline.

Frank Hermance

Why don’t we do that offline for you, Allison, and then we’ll get you the question – or the answer.

Allison Poliniak - Wells Fargo Securities, LLC

All right. And then just, you know, in terms of margin expansion, you guys are on track for well over 100 basis points this year. You know, looking out further, if we do settle into that sort of high single-digit growth rate on the top line, can you remind us again how we should be thinking about margin expansion?

Frank Hermance

Yeah, we’re estimating now at least 120 basis point of margin expansion for 2011 over 2010. And as I mentioned before, if the growth rates are better than what we’re forecasting, we’ll see even more margin expansion than that. So I would say 120 basis points is a floor.

Allison Poliniak - Wells Fargo Securities, LLC

Great. Thank you.

Frank Hermance

You bet, Allison.

Operator

Our next question comes from the line of Wendy Caplan with SunTrust. Please proceed.

Wendy Caplan – SunTrust Robinson

Thank you. Good morning.

Frank Hermance

Good morning.

Wendy Caplan – SunTrust Robinson

It’s – well, I’m glad I didn’t have to ask the conservative question since you answered it for me. But where – if the growth rates, you know, do appear to be higher, where do you expect them to be? Where will we see that? What’s the likelihood?

Frank Hermance

Yeah. I think it’s going to be in the later cycle businesses. We’re estimating how rapidly they’re going to grow. If the process businesses continue on the trend that they have been on, they have a good chance of exceeding the estimates that we’ve put in place.

And also, from the viewpoint of aerospace, as I mentioned, our aerospace orders have just taken off. And if that continues, it will come down to how much can we shop in this year versus the next year. So there’s definitely a possibility that those businesses could do better than we’re forecasting.

And I don’t want to leave our power businesses out of this either because the order trends were very, very good in power. And it’s also possible that we could do a bit better there.

So – and I don’t see a huge amount of downside. It really comes down to how much growth are we going to get given this macroeconomic situation that is occurring.

Wendy Caplan – SunTrust Robinson

Okay. And headcount, can we talk about where we are versus the beginning of the year, and where are you hiring, where are you having trouble hiring? And are there any examples of where you are laying off?

Frank Hermance

Yeah. We’re up about a 150 people extracting the acquisitions that we did this year. So that’s sort of a baseline-to-baseline employment level. It’s – well, there are predominantly salary positions, which is a change from as we were ramping up at the second part of last year. And it’s largely outside the United States, unfortunately for the U.S.

If you look outside the United States, I don’t know exactly, but it’s probably 2/3 of those hires are outside the U.S., very heavily in the BRIC countries. I have one data point in mind that the BRIC countries, we’re putting in over last year and this year, about 190 people in rough numbers. And most of those are this year. There were about 57 added last year and the remainder is going this year.

So we’re just trying to capitalize on the growth in the BRIC countries. And in terms of layoffs, we’ve had some minor layoffs that are associated with some restructuring activities. But not substantial this year. Obviously, during the downturn, we took about 20% of our entire workforce out and obviously, we are not adding back at that rate at all, and we don’t need to, in essence because we have done infrastructure restructuring and that’s why you’re seeing this phenomenal margin performance, et cetera, that we think we can maintain.

Wendy Caplan – SunTrust Robinson

Okay. And you said salary positions, is it marketing, management – how should we think about that?

Frank Hermance

Yeah. It’s largely sales resource in China, and in India, it’s a combination of sales and engineering resource. We now have about 50 people doing engineering work in India in our operation there. And we plan on substantially increasing that. As a matter of fact, we just leased another floor in the building that we’re in, and we expect probably by the end of next year, we’ll have over 100 people doing engineering work in India.

So those are the drivers. There are some other support people, but it’s predominately sales people, feet on the street, sales management people and engineering people.

Again, focused on growth.

Wendy Caplan – SunTrust Robinson

Okay. And one last question, can – you usually give us the core incremental margin for the quarter.

Frank Hermance

Yeah. If you exclude this accelerating vesting of restricted stock, the contribution margin in the business was 37% and if you include it, it was 33%.

So the more normalized rate and what you’d expect to see going forward is above that 35% level. So very good flow through.

Wendy Caplan – SunTrust Robinson

Okay. Thanks very much.

Frank Hermance

You bet, Wendy.

Operator

Our next question comes from the line of Mark Douglass with Longbow Research. Please proceed.

Mark Douglass - Longbow Research

Good morning, gentlemen.

Frank Hermance

Hello, Mark.

Mark Douglass - Longbow Research

Frank, going a little bit more into power and process, can you review the demand in the power products that are region end markets? Any particular products strength that you saw? And what is it about defense? It seems like it wouldn’t be holding up as well as it is. Or is it holding up with power?

Frank Hermance

Yeah. Let’s talk about the power business first. If you look at our power business, it’s roughly $300 million in volume and a little less than half of that is in test and measurements. And by test and measurement, I mean, these are systems that are used to test power systems in essentially another company’s manufacturing operation. So we can go into any electronics company, or for that matter, a Boeing or anybody that’s producing product and has electronic gear and our systems can automatically test it.

And that business has been the key driver, or a key driver to the growth in ours. And that reflects the general trends that you’re seeing in the test and measurement market, in a broader sense than just power.

In addition, our battery backup system, which is a large percentage of the remaining business, it’s about $100 million. They have about half of their business that actually goes in oil and gas. And when we speak about oil and gas, we don’t include that. We include that portion as part of the power business.

And that’s following the same trends that we’re seeing in our process businesses, with very, very strong growth. And the remaining piece of the business is essentially instrumentation that goes into tests and distribution and generation of power. And that’s rebounding nicely, not as strong as the other two parts that I talked about, but there’s strength across that entire power business.

The second part of your questions around defense, you may recall that we make some very good investments quite a number of years ago on both sides of our defense aerospace business. In the EIG side, we decided to invest in helicopters. It fit the capabilities of AMETEK. We saw growth opportunities in helicopters and to be very honest about it, I don’t think any of us anticipated that helicopters would be doing as well as they are. So we are riding that trend of military and not even in terms of as much wars as it is, they have to change the dynamics of their air fleet to simply put more helicopters in it.

So that business is doing well. And then the second issue on the EMT side of the business is that we are the prime supplier to the military for cooling systems on any electronic devices. You know, we have fans that are just ingrained in the military, very high-performance fans that can cool electronics. And what’s happening is there is a – even with the constraints on the budgets that we’re seeing now and that we’re going to see, the electronic content of what’s going into, in essence, the military, is simply increasing.

So even with a flat topline on military business in terms of the overall market, or even a decreasing trend with that electronics content increasing with that, we’re enjoying that. So as a result, our military business is doing okay. You know, it’s not at the same – it’s not growing at the same level as our commercial businesses that I talked about, but it’s still doing quite well and we’re optimistic, even with what’s occurring in Congress now, that we’ll be able to do well.

And again, remember, it’s only about a third of our aerospace business. So it’s, you know, it’s not a major part of our company.

Mark Douglass - Longbow Research

Thank you. That was very helpful. And then finally, on the process side, for I guess maybe all of the process and power, what is your total exposure to Brazil? It sounds like a combination of power and process.

Frank Hermance

Yeah. Total sales in Brazil run over $30 million. Bill’s looking it up exactly. Am I right?

Bill Burke

Yeah.

Frank Hermance

It’s $30 million, but there’s a huge opportunity here and I can expand on this a little bit. We’re in the final states of putting a lease together, so lease 100,000-plus square foot facility in Brazil and it’s a result of initially winning that large contract that I talked about in my opening remarks that concurred. But we’re going to use this facility as we have in China, as we have in Mexico and as we have in Eastern Europe, now as a location where all of our divisions will have access to do manufacturing in Brazil.

And manufacturing in Brazil is very important because there are significant tariffs that they impose on anything that is imported in. And they’re obviously trying to encourage it’s local manufacturing. So we’ve decided that in essence to further penetrate that market, it’s essential to manufacture there. So we’re starting to do that.

And in addition to that, in the same facility, we’re in the beginnings of building the same type of distribution infrastructure locally that we have in China, that we have in Europe, that we have in Eastern Europe. And we just hired a general manager, a very, very strong guy, who’s going to oversee both the manufacturing and the distribution side of this business.

So we’re going to make significant investments in Brazil. We, as I think you’re aware, we’ve made significant investments in China, more recently in India and Brazil is the next part of the world that we’re going to focus on.

Mark Douglass - Longbow Research

Great. Thanks.

Frank Hermance

You bet.

Operator

Our next question comes from the line of Richard Eastman with Robert W. Baird. Please proceed with your question.

Richard Eastman - Robert W. Baird

Yes. Good morning. Nice quarter.

Frank Hermance

Hi, Rick.

Mark Douglass - Longbow Research

Frank, could you just speak for a minute or two to your exposure in Asia? We talked – you talked about the growth rate in Asia and I’m curious, you know, where AMETEK has the most exposure when you’re looking at kind of product lines or at least kind of subsegments in the business?

Frank Hermance

It’s basically our process businesses and our low-end floor care business. Those are the two businesses that represent the largest part of Asia markets.

Our power businesses are more in the beginning of penetrating that part of the world. I think there’s tremendous opportunity for our power businesses, but they are not at the same level of sales at this point that our process and floor care motor businesses are.

Mark Douglass - Longbow Research

Okay. Okay. And then also just, with the recent acquisitions, you know, just a bit of a makeshift towards kind of the interconnect businesses. And then also the medical apps, or applications, kind of market. Is that intentional? Do we continue to shift the business maybe directionally that way, or is that more opportunistic based on the M&A market itself?

Frank Hermance

In terms of, if we look at EMG, this is strategic what we’re doing and it lines up directly with what we really have been talking about for a number of years, where when you go back in time, that segment was predominately floor-care motors. And the dynamics in that business, as we all know, is – it’s a lower growth kind of business. So strategically, we said we are going to focus on differentiated businesses that in essence can go into EMG. And we decided to essentially grow off of businesses that AMETEK already owned, although at that time had very strong levels of sales.

So we had a specialty metals business for many, many years, actually, it was acquired more than 20 years ago because it was acquired before I came to AMETEK and I’ve been here about 20 years. And a very, very good, high profit margins, and we looked at opportunities around it. And in essence, this metals focus came out of that activity.

And for many years, we’ve been talking about medical. We think that’s a good market for both instruments as well as the electromechanical side of the business. And as we looked at that, there’s opportunities on both halves of the business, but we’ve been fortunate enough to get companies that we know something about, we know a lot about metals and that type of product, and essentially, putting it into a very good market, which is medical.

So this is strategic. It’s not opportunistic. It’s opportunistic in the sense that when acquisitions fit that model, we go after them. But it wasn’t that these businesses were just available and we said, oh, let’s go there.

Mark Douglass - Longbow Research

Okay. Okay. And then in terms of the initiative to build out the third-party MRO kind of aerospace business, obviously, very good growth. You know, my guess is M&A multiples are probably – probably reflect that good growth. But is that – are there still MRO opportunities in the M&A pipeline?

Frank Hermance

No question. Actually, I can tell you that we’re working on one right now and again, I’m not going to postulate whether we’ll close it or not. There’s always issues with deals, but hopefully we will. So there’s definitely additional opportunities there. They’re great businesses and actually, in terms of multiple, the multiples on those businesses are actually lower.

And the reason they’re lower, it’s not because of the growth, it’s because most of those companies don’t have the inherent ability to do PMAs and DDRs. And therefore, their margins are low because they have to essentially buy all the material from the OEMs and the OEMS mark them up.

And therefore, there’s a discount on the multiple of those businesses. So what we do, is most of those businesses we bought, I don’t know exactly, but probably in the 6 ½, 7 times trailing EBITDA, we bring them in and we do the PMAs and the DDRs so we can get the profit margins up from say 10%, 18 or 19% so they’re you know, from a return on invested capital viewpoint, they’re homeruns in essence. So the next model that – and the reasons we went after these businesses and you add that to the great growth rate, and you know, it’s very, very good business.

On the other side of this, we don’t want to have our aerospace business become just a third-party MRO business. We see it as an adjunct to our base business.

Mark Douglass - Longbow Research

I see. Okay. Very good. Thank you.

Frank Hermance

You bet.

Operator

(Operator instructions). And our next question comes from the line of Jim Fong with Capelli. Please proceed with your question.

Jim Fong - Capelli

Good morning, Frank and everyone.

Frank Hermance

Hi, Jim.

Jim Fong - Capelli

Frank, I just want to – just going back to aerospace, Boeing and the Airbus announce higher production rates on the airplanes as we go out to 2014 as well as, you know, new airplanes being launched. And I was wondering, could you kind of comment where your aerospace OE business is today, and how high can that go, where would that be when you get to 2014, 2015 timeframe?

Frank Hermance

Yeah. I think I can give you an answer to that, Jim. If we look at just commercial aerospace, it’s about 20% of our total business in aerospace. And our total aerospace business is on the order of 550 – let’s round it to $600 million. So 20% is $120 million. So that’s roughly where we are today.

And you look at these production rates and you know, this year Boeing is growing in terms of number of aircraft, about 10% and Airbus is growing about 5%. So say – and they’re roughly splitting the market, so they’ve got 7-8% growth. And then you take the aftermarket piece of this, which is going to grow in that same number. So I think if you take that $120 million number and put, excluding any additional acquisitions, you put a, you know a high single digit organic growth rate on it and roll that out, I think that’s a reasonable model for that business.

I don’t know exactly where that ends up in 2014, but I think if you did it that way that would give you a reasonable model.

Jim Fong - Capelli

That’s terrific. And what was the margin growth? Is there any – what kind of margin expansion we could see as we go on during that time period?

Frank Hermance

Oh yeah, no I think definitely we can continue to do margin expansion. Just the growth, if you’ll look at the organic growth in our businesses and in response to Wendy’s questions with this greater-than 35% contribution margin, as you get the growth and that kind of contribution margin, there’s really only one place that bottom line margins can go an that’s up. So I think there’s definitely expansion there.

And I could also say that the aerospace contribution margins are higher than the company average because obviously, they’re, you know, very, very good businesses. So you know, excluding any cost activities that we’ve put in place, there’s definitely margin potential here.

Jim Fong - Capelli

Great. Okay, thanks so much.

Frank Hermance

You bet.

Operator

And there are presently no further questions, sir, at this time. Please continue with your presentation or closing remarks.

Bill Burke

Okay. Thank you Savanna. Thank you everyone for joining our conference call. As a reminder, a replay of this call can be heard by calling 800-633-8284 and entering the confirmation code number 21532101 or go to the Internet at Ametek.com or steetevents.com for the webcast archive. Thank you very much.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.

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